SAO PAULO -(Dow Jones)- Brazilian sugar and ethanol group Cosan Industria e Comercio SA (CSAN3.BR) and Royal Dutch Shell PLC (RDSA.LN) announced Thursday the formal creation of their Brazilian ethanol joint venture Raizen, which will be the world's largest sugar and ethanol producer. Rubens Ometto, Cosan's board chairman, will also be chairman of Raizen's board, with an annual salary of 13 million Brazilian reais ($8.2 million), plus a variable bonus for the next five years, the new company said. The joint venture starts off with a net debt of BRL4.94 billion. Earlier this year, the companies agreed that Cosan will keep its sugar retailing business separate from the ethanol venture. The joint venture is still under review by Brazilian antitrust regulators. Raizen, created last year by the companies to produce ethanol and sell it at Raizen's more than 4,500 service stations in Brazil, will boost sugarcane-crushing capacity to 100 million metric tons a year, up from current output of 60 million tons, Raizen Chief Executive Vasco Dias said in February. Ethanol production is expected to more than double over the next five years to five billion liters a year, Dias said at that time. Raizen now produces about 2.2 billion liters annually. Raizen represents a huge step in the consolidation of Brazil's fractured ethanol sector, where many of the sugarcane mills are family owned. That has made the sector ripe for picking for foreign investors flush with cash and a desire to enter Brazil's biofuels segment. Cosan's and Shell's creation of Raizen was followed by two separate deals made by Brazilian state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras. In May, Petrobras invested nearly $1 billion for a 46% stake in local sugar group Guarani, the country's fourth-largest sugar miller. Petrobras then paid about $240 million for a 49% stake in Nova Fronteira Bioenergia SA, a joint venture with local sugar producer Sao Martinho SA (SMTO3.BR). Previously, consolidation in the Brazilian biofuels sector had been limited to smaller deals between rivals or investment funds. U.S. company Bunge Ltd. (BG) in December 2009 acquired Usina Moema Participacoes SA, which owns a Brazilian sugarcane mill and has ownership interests in five others. France's Louis Dreyfus Commodities in October 2009 took control of giant sugar and ethanol group SantelisaVale. Cosan snapped up local milling group NovAmerica in early 2010. -By Rogerio Jelmayer, Dow Jones Newswires; 55-11-3544-7071; rogerio.jelmayer@dowjones.com
